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Friday, July 16, 2010

I have a few surprises for you. The Great Depression (October 1929 – 1935) was even worse than the history books say it was. The un-employement rate during the Great Depression is usually said to have been almost 25%. But farmers and farm workers were not considered unemployed until they had lost their farms. In 1933 the un-employement rate amongst non-farm wrokers was actually 37%. By 1933 the average income of Amercian families had been cut by 40%, 9 million savings accounts had been completely wiped out, 60% of Americans lived below the poverty level, a quarter million had been evicted from their homes, and 2 million of those became migrant workers. By 1934 almost half of the banks in America had failed, corporate profits had fallen by 90%, home building had dropped by 80%, prices fell by 20% and industrial output had been reduced by almost half.

The New Deal did not end the Great Depression. It cut un-employment by half, but that still left one in five Americans looking for a job. In 1929 investments by individuals, corporations and governments, a practical display of faith in the future, had been $92 billion. By 1933 that faith in the future had fallen to $10 billion. Four years of the New Deal had returned that investment to $94 billion, but it was just then that the deficit hawks insisted that the government must now “balance its books”, “pay its bills” and “live within its means”. Federal budgets were slashed in 1937, and in 1938 investments dropped to $61 billion. This period is called “The Roosevelt Recession”. To quote from Wikipedia, “Unemployment jumped from 14.3% in 1937 to 19.0% in 1938, rising…to more than 12 million in early 1938…Personal income in 1939 was almost at 1919 levels…”. High levels of unemployement remained until 1943, when war work reduced unemployement to just 2%.

World War Two was almost as expensive on the home front as it was on the front lines. In the first 18 months of U.S. involvement in World War Two, from December 7, 1941, to April 1, 1943, 12,123 Americans died in uniform. Over that same period 65,000 civilians died in industrial accidents all across America - 4 civilian deaths for every one military death. These civilian workers died while making artillery shells, machine gun bullets, building bombers and digging coal. Civilian deaths declined steeply over the last two years of the war, but with American combat deaths totaling about 300,000 for all four years, the final disparity was only about three to one.

Despite the drop in unemployment brought on by war production, poverty actually increased during the war years. According to a Congressional Committee, with unemployment close to just 2% during the war, 20 million Americans still went to bed hungry. One in four wage earners was making just 64 cents an hour. Part of that was capitalistic resistance to the "new" minimum wage laws, and part was the result of a massive influx of people into the job market. Three million teenagers dropped out of high school to work in war plants.

The war did not lead to inflation because it simply was not allowed to. In 1929 the top tax rate, applied to incomes over $100,000 a year ($16 million per year, today), was 24%. By the end of the war the top rate was 94%. In addition there was a “Victory Tax” of 5% tacked onto all income. You could avoid paying that tax on a portion of your income, by buying “War Bonds”. They earned only 2.9% interest, but more than half of all Americans bought them. This took $185.7 billion (about half the cost of the war) out of circulation for ten years, until the bonds reached maturity.

In economic terms, America’s Second World War was the New Deal on steroids. In 1948 President Harry Truman gave the final price tag for America’s war at $341 billion, ($4 trillion in modern currency). The most obvious expenses, such as tanks, airplanes, tents, military bases, aircraft carriers, artillery pieces and explosives, were items that had little if any peace time applications. After the war, aircraft went directly from the production lines, to the scrap yards. But those were, in fact, merely the most obvious expenses. Despite what conservative ditto thinkers might insist, by 1965 that enormous war debt had been repaid in full. The year before our entry into the war the national debt was 43% of the Gross Domestic Product. In 1946 it was 128%. In 1965, it was back to 45%.

The debt was repaid so quickly because we spent our way to prosperity, something the ditto thinkers still insist is an impossibility. New highways and rail lines, power plants, refineries and water systems, built to supply war plants and their workers, provided increased opportunities for profit in the post war years. More importantly, more than 7 million veterans went back to school, fully funded under public law 346, the “G.I. Bill”. By 1951 this single piece of social legislation had educated 8 million veterans. One and a half million were given “on the job training”, two million went to two and four year colleges, including three American Presidents (including Ronald Regan) 14 Nobel Prize winners, and hundreds of thousands of teachers, doctors, nurses and businessmen. According to a 1988 Congressional Budget Office Study, for every dollar spent on the G.I. bill, $7 was repaid in increased earnings, consumer spending and taxes paid back into the government. And that does not include the result of a better educated workforce on production. The result for business was that the productivity of two man-hours in 1940 could be matched by just one man-hour in 1965.

If there is a lesson here for our current injured economy, it is that we should not be attempting to emulate the New Deal, but the Second World War. Goals must be set - sustainable energy independence, a smart power grid, rejuvinated transportation systems - goals that once met will generate new wealth. To meet those goals, sacrifices must to be required of all citizens. And limits need to be set, time limits and levels of sacrifice to be required. On the other side of this sacrifice there must be a healthier, stronger nation.

At the core of this proposal is the idea that capitalism is not sustained by billionairs or even millionairs. If that were true the Kings and Queens of old should have produced capitalism eons earlier. Merely replacing the greed of the nobility with the greed of the smartest or the luckiest does not sustain an economy. Capitalism is the product of a large, healthy middle class. And if the inequities of capitalism are justified by its advantages, then it must raise the standard of living and ambitions of the most people possible. The production of billionairs is merely a happy side effect.

Today the ratio of national debt to Gross Domestic Product is approaching 90%, equal to what it was at the end of World War Two. And during the most recent spending spree (the Bush era) we did not make the investment in the middle class required to provide for the future. In short, as surprisng as it might seem, time may be running out for capitalism. And it will have been killed by its most fanatic acolytes, the bankers and the CEO's.

Wednesday, July 14, 2010

I am surprised that most people think the Seventh Cavalry was wiped out at the battle of the Little Big Horn by the Sioux and Cheyenne. In truth, of the 650 officers and men, scouts and civilians engaged on June 25, 1876 (on the Army’s side) only some 286 were killed: a devastating 44%, but hardly the entire command. Most of the men under Major Marcus Reno, second in command at the battle, made it out alive. And where Reno was able to hold his command together over three horrible days of combat, the 210 men directly under the command of “General” George Armstrong Custer were dead within three hours of the first shot being fired. But the results for the U.S. Army were even worse in the Second Battle of the Little Big Horn, when, for fifty-seven years, they were mercilessly attacked by a five foot four inch Victorian widow with blue-gray eyes and chestnut hair. Her name was Elizabeth Bacon Custer. And in this engagement she wiped the U.S. Army out, leaving no survivors.

Immediately after the battle the military judgments were fairly unanimous. President Grant, who had been elevated to the White House based on his record as a military commander, told a reporter, “I regard Custer’s massacre as a sacrifice of troops brought on by Custer himself,…(which) was wholly unnecessary – wholly unnecessary.” General Philip Sheridan, the man who had lobbied for Custer’s inclusion on the expedition considered the disaster primarily Custer’s fault. “Had the Seventh Cavalry been held together, it would have been able to handle the Indians on the Little Big Horn."

And finally, General Samuel Davis Sturgis (above), overall commander of the seventh (but who was not in the field with them), and whose son, James, had died on the Little Big Horn, was appalled by the suggestion that a monument be dedicated to the memory of “The American Murat”, General Custer. “For God’s sake", urged Sturgis, "let them hide it in some dark valley, or veil it, or put it anywhere the bleeding hearts of the widows, orphans, fathers and mothers of the men so uselessly sacrificed to Custer’s ambition, can never be wrung at the sight of it.” And the vast majority of professional army officers agreed with General Sturgis.

Having dismissed the dead Custer, at first the army also dismissed his 34 year old widow. Barely a month after her husband had died amid the Montana scrub brush, “Libby” Custer was forced to leave her home at Fort Abraham Lincoln. As a widow Libby had no right to quarters on the post, and so lost the social support of her Army life and friends. Her income was immediately reduced to the widow’s pension of $30 a month. Her total assets were worth barely $8,000, while the claims against Custer’s estate exceeded $13,000. And then, in her hour of need, Libby received spied the perfect weapon to be used in defense of herself and her dead spouse.

His name was Frederick Whittaker, and he scratched out a living as a writer of pulp fiction and non-fiction for magazines of the day. A kind reviewer described his work as, “…about the best of its kind”. He had met Custer (above with Libby) during the Civil War, and the General’s death inspired him to write a dramatic eulogy praising the fallen hero in Galaxy Magazine. Whittaker also mentioned Custer’s “natural recklessness and vanity”, but Libby was willing to ignore that mistake, and immediately contacted him. Libby provided Whittaker with the couple’s personal letters, access to family and friends, war department correspondence and permission to use large sections from Custer’s own book, “My Life on the Plains.”

What emerged, just six months after Little Big Horn, was “A Complete Life of General George A. Custer”. It was pulp as well, filled with inaccuracies and excessive praise for Custer, but it was also a best seller. “So fell the brave caviler, the Christian soldier, surrounded by foes, but dying in harness amid the men he loved.” This time there was no hint of faults in Custer. Instead the blame was laid elsewhere. Of Custer, Whittaker wrote; “He could have run like Reno had he wished...It is clear, in the light of Custer’s previous character, that he held on to the last, expecting to be supported, as he had a right to expect. It was only when he clearly saw he had been betrayed, that he resolved to die game, as it was too late to retreat.”

All but a few professional soldiers admitted that Whittaker had gotten it wrong, Custer was not a great indian fighter. In fact one of the most serious charges laid against Custer before his death was that in December of 1868, at the Battle of the Washita, Custer had deserted a junior commander, Major Elliot, and his 21 men, who were all killed. But those experienced officers withheld their criticism of Whittaker to avoid being forced to also criticize Custer's widow. This was, after all, the Victorian age, and women had to be protected. But the essential truth about what happened on the Little Big Horn was always been known, to the proffesionals.

On the afternoon of June 25, 1876, Major Marcus Reno was ordered to advance into the valley of the Little Big Horn River with three companies, about 120 troopers, and attack the Indian village. He was also told he would be supported by "the entire outfit". Having not yet seen the indian village (neither had Custer when he issued the orders) Reno had crossed the river and reformed his men in a wooded glade. Then he led two companies forward, in line abreast with their right flank anchored on the river, and with the third company following in reserve, northward, toward the Indian camps. I say "camps" because it turned out there were two. However, as the river curved away, Reno was forced to throw the third company into line as well, in order to mantain his hold on the river, and avoid being outflanked. Reno now had no reserve, and there was still no sign of Custer.

The expectation of Custer and Reno was that once confronted, the Sioux and Cheyenne would disperse, and run to escape. This was the way Indians had always reacted to cavalry. Indian warriors were not soldiers. They were fathers and husbands with families to support. But three days earlier the indians had surprised and battered another Army column coming up from the south and forced it to retreat. The Indians thought they were now secure in this camp. They had posted no scouts. And the sudden appearance of Custer with some 650 mounted soldiers, had caught them napping. There was no time to send their women and children to safety. There was no time to save their pony herds, without which they could not hunt. Their backs were agains the wall, and confronted, they came swarming out of their camp, desperate to drive off the invaders.

The army had thought there might be 3-500 Indians in the camp. In fact there were closer to 3,000, of which perhaps 1,000 were warriors. The cavalry was out numbered. And thanks to Custer, they were being ou-generaled. And thanks to thier single shot carbines, they were even going to be out-gunned.

Confronted by this broiling mass of agressive warriors, Reno ordered his men to halt and form a scirmish line. Every fourth trooper became a horse-holder, and withdrew fifty yards, while the other three knelt and began firing their carbines. The object was to keep their enemy at least one hundred yards distant, but this also reduced Ren's available force on the line to less than 100 guns. Meanwhile, the Indians, armed with less accurate repeating rifles and pistols, as well as bows and arrows, wanted to close to less than 20 yards. Within a few minutes there were an estimated 500 indians on Reno's open left flank. There were more Indians reported to be working into the woods along the river, on Reno's right flank. One of the men on the skirmish line later said that if they had held that line for a few more minutes, "We would be in that valley, still." And there was still no sign of Custer and the "rest of the outfit", as promised.

Worried he was about to be surrounded, Reno ordered his men to abandon the skirmish line and to fall back into the woods. There, with his flanks temporarly secure, he tried to make a new plan. But while Reno was speaking to an Indian scout named Bloody Knife, the man's head virtually exploded from a rifle round. Reno was coated in the man's brains and blood. Reno lost control of himself. He tried to deliver orders, but they became uncorrodinated paniced actions. With no warning or planning Reno's men were ordered to mount and retreat back across the river. The movement became a wild uncorrdinated running fight, splashing through the water and followed by a desperate climb up the steep bluff.

At the top, Reno finally had a stroke of luck. His desperate men were met by Captain Fredrick Benteen and his 110 men. They had been sent off by Custer hours earlier to search for Indians to the south. They had found nothing, and, having heard nothing from Custer, were returning on their own, luckily at this exact moment. Shortly there after, the entire command's ammunition supplies, packed on mules, and guarded by a single company, also arrived at the same location, atop the bluffs. There was still no sign of Custer, or of the 225 men under his command. But with the ammunition packs at least Reno's command could defend themselves

For three days Reno, Benteen and their men, held off Indian snipping and attacks. The wounded suffered under the summer sun, and a few men braved the constant snipping to crawl down to the Little Big Horn for water. The ordeal came to an end only when a third supporting collumn appeared, from the north. Given a choice of fighting or running, the Indians retreated. And once they did, Custer's butchered command was discovered, on a rise renamed "Last Stand Hill".

Frederick Whittaker's book, and the public outcry which followed it, attempted to shift blame for the disaster off Custer and lay it in Reno. The criticism mounted day by day. Eventually Reno was forced to ask for, and received a Court of Inquiry (not a Court Martial) on his conduct at Little Big Horn. This cleared his name and revealed the character of the people Whittaker had relied on for his version of the battle. But it made little difference to the general public who declared the inquiry a whitewash. Custer was a hero, the subject of paintings and legends. And that was the way it was, whatever the reality.

Elizabeth Custer went on to support herself comfortably by writing three books; “Tenting on the Plains”,"Following the Guidon” and “Boots and Saddles”. In each her husband was idolized and lionized. In 1901 she managed to squeeze out one more, a children’s book, “The Boy General. Story of the Life of Major-General George A. Custer”: “The true soldier asks no questions; he obeys, and Custer was a true soldier. He gave his life in carrying out the orders of his commanding general… He had trained and exhorted his men and officers to loyalty, and with one exception they stood true to their trust, as was shown by the order in which they fell.”

By the time Libby died, in 1933, at the age of ninety-one, her vision of Little Big Horn was set in the concrete of the printed page. Amongst the first who had endorsed Libby's view was Edward S. Godfrey, who had been a junior officer at the Little Big Horn and a Custer “fan” from before the battle. His 1892 “Custer’s Last Battle” was unequivocal. “...had Reno made his charge as ordered,…the Hostiles would have been so engaged… that Custer’s approach…would have broken the moral of the warriors….(Reno’s) faltering ...his halting, his falling back to the defensive position in the woods...; his conduct up to and during the siege…was not such as to inspire confidence or even respect,…” .” It was absurd, as anyone who had been in the valley with Reno could have told Godfrey. But Godfrey had been with the ammunition train, And he simply refused to listen anyone who even hinted that Custer might in any way have been at fault. When Reno died, there was even doubt that he would be buried in a military cemetary.

These attacks on Reno continued for most of the 20th century. The 1941 movie staring Errol Flynn as Custer displays Libby's view of Reno as well as any tome, echoed even by respected historians such as Robert Utley, who in the 1980’s described Reno as "… a besotted, socially inept mediocrity, (who) commanded little respect in the regiment and was the antithesis of the electric Custer in almost every way.”

So for over a century Marcus Reno was reviled and despised as the coward who did not charge as ordered, instead, pleading weasel-like, that Custer had not supported him as promised. It would not be until Ronald Nichols biography of Reno, “In Custer’s Shadow” (U. of Oklahoma Press, 1999) that Reno would receive a fair hearing.

About this same time the Indian accounts of the fight began to finally be given a serious consideration by white historians, including the story told to photographer Edward Curtis back in 1907 by three of Custer’s Crow Indian scouts. The three (now aging) men said they had watched amazed as Custer stood on the bluffs overlooking Reno’s fight in the valley, a story supported by some soldiers in the valley fight who reported seeing Custer on the bluffs. (Most historians had always assumed they were imagining things.)

One of the scouts, White Man Runs Him, claimed to have scolded Custer; “Why don’t you cross the river and fight too?” To which, the scouts say, Custer replied, “It is early yet and plenty of time. Let them fight. Our turn will come.”

And it did. But General Custer was not really ready for it. And that point is undisputed.

Sunday, July 11, 2010

I believe the term scam evolved from the French “escamote”, which is a magician’s ball. While the “mark” watched the magician shift the hidden ball his “escamoteur” (accomplice) would “escamoter” (steal away) with the mark’s purse. By 1893 Isabel Burton could write, “You have been robbing the public for the last quarter century, and only the other day you bought a bottle of ordinaire and escamote'd it into sixteen kinds of vins fin., a scam if ever I heard one.” (The Life of Captain Sir Richard F. Burton)

When the Dutch settled New Amsterdam, the chief gunner (or “Konstapel”) assigned to defend the harbor was granted land where the narrow Kill (or tidal channel) van Kull, runs past Staten Island (left of above frame), separating the bay of New York (foreground) from the bay of Newark (background). This land grant, called Constable Hook, was specifically the land jutting out from Bayonne, New Jersey, 10 miles south of Manhattan. In the late 1950’s (as it is today) Constable Hook was the unattractive home of industrial tank farms, including the 139 gray-green storage tanks, some of which are five stories tall, where Anthony De Angelis e-scam-tuer-ed with his investor’s purse.

The vegetable and fish oil in the tanks owned and leased by Allied Crude Vegetable Oil Refining Corporation was destined for shipment to factories worldwide to be converted into margarine, vitamin extracts, paints, soaps and toiletries, pharmaceuticals and, of course, salad oil. In order to measure the volume held in each tank American Express Warehouse instructed its inspectors to lower a ruled measure to the bottom of each tank. When the tape measure was withdrawn, the inspector would note the film of oil on the tape. American Express would then vouch for the amount of oil held by Allied at Constable Hook. The only problem was that all of the men working at Constable Hook for American Express were also working for Anthony De Angelis.

As already mentioned Thomas Clarkin was paid $500 a month by American Express as a custodian and to keep the inventory records, but Anthony paid Tommy $1,200 a month as a “messenger”. And, as Anthony later admitted, “He told me he needed a house for his wife and kiddies so I said, `Tommy I'll give you the money for your house.” And he did. Joe Lumuscio, another of Anthony’s ‘buddies’, was paid $6,000 a year as a custodian by AmEx, but pocketed $53,000 a year from Anthony's Allied. And overseeing the entire scam was the General Manager of the Constable Hook facility, Leopold Bracconeri, who was Anthony’s brother-in-law.

Like all scams, this one was based on a simple slight of hand. When the inspectors verified the inventory Allied’s custodians were the ones who actually climbed atop each tank, lowered a tape measure, and read off the level of the oil film. The inspectors would rarely if ever climb the tank or even check the tape. So Anthony’s boys could call out any number they wanted, and that number would become the “official and verified” inventory.

Gradually Anthony’s boys would fill the tanks with salt water, leaving a few inches of oil floating on the surface. Then, when “inspecting” each tank, they would note the film of oil at the top of the tape, and this proved more than enough to lull any overly conscientious inspector. The captains of industry who ran American Express never visited Constable Hook, and certainly never climbed atop the tanks upon which so much of their fortunes and reputations were now based.

According to author Norman C. Miller, Anthony had come to the amazing realization, that “…he always had more oil stored than he needed to satisfy customers' immediate demands…(and) As long as he could meet daily withdrawals, he might have almost any amount of oil in storage, for all the world knew.”

Then, using the magic of the credit line AmEx had granted him, Anthony could convert any excess product he claimed he had at Constable Hook into cash, and then using the magic of “Commodity Futures” he could multiply that cash by a factor of 95.

Wikipedia defines a futures contract as an agreement “… to buy or sell a specified commodity of standardized quality at a certain date in the future.” But in practice Futures are bought and sold as if they were stock, usually by speculators who have no intention of ever taking delivery on the commodity. The Greek philosopher Thales had invented the idea in the 4th century B.C. when one summer he reserved olive oil presses for the fall harvest with a down payment. If the harvest was good, the presses would be in demand and Thales could charge far more for their use than his deposit. If the harvest was bad, Thales was out only his deposit. It was a brilliant innovation, sharing the risk of producers with investors. But the system was rife with possibilities for fraud, which is why it languished for 2,000 years outside the mainstream of capitalism.

The heady field of Commodity Futures Traders usually worked on a 15% margin, which meant that for a million and a half in collateral (vegetable oil) Anthony could buy the contract for oil worth $10 million. But since Anthony was so well connected in the industry he was able to negotiate for a 5% margin from Wall Street brokerage houses Ira Haupt and Williston and Beane. That meant that with AMEX receipts claiming $1.5 million in inventory at Constable Hook, Anthony could commit to the purchase of $142.5 million worth of Futures. And that was the temptation for Anthony’s boys to claim increasing quantities of oil the tanks did not contain.

With buying power like that Anthony was quickly driving up the price of soybean, cottonseed and corn oils, thus profiting more from his fraudulent inventories. In reality, Allied was shipping up to 100 million pounds of vegetable and fish oil out of Constable Hook each week, $250 million worth in a year, 75% of the total U.S. exports of vegetable oils. But that was no longer enough for Anthony. Showing paper profits on his Futures trades, Anthony began to dream of cornering the entire market on vegetable oils. His secretary, Josephine Salto, begin to carry her typewriter with her. At anytime, day or night, Anthony might ask her to type up a blank AMEX Warehouse inventory receipt claiming a new figure; “a figure apparently unrelated to anything except Allied’s need for cash” (Miller).

By 1960 Allied’s operations, both legal and fraud, were beginning to show the strain. Anthony claimed to have spent $2 million to win a contract from the Spanish government. But the deal fell through after the U.S. Department of Agriculture charged Allied with back-dating a previous 11959 Spanish contract. Other Spanish customers were now claiming the oil they had bought was arriving spoiled, perhaps because it had been mixed with sea water. The USDA fined Anthony $1.5 million, and the little con man complained, “While I was brilliantly moving and selling all over the world, I had a very powerful force working against me.”

It was true. And the powerful force working against Anthony turned out to be...Anthony.